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With all the brouhaha over the announced Alibaba spinoff by Yahoo!, Elizabeth V. Zanet explains the circumstances in which a corporate division – known as a demerger in many countries – can be achieved in a tax-free manner under U.S. tax law. The path is not easy as these divisions are the lone vestiges allowing tax-free corporate distributions of appreciated assets under U.S. tax law.
Read MoreRecently, the Internal Revenue Service (“I.R.S.”) Office of the Associate Chief Counsel (Corporate) announced that it may hold off on issuing ruling requests to taxpayers seeking assurance on the “active trade or business” requirement (“A.T.B.”) of a tax-free spinoff under Code §355. In light of recent market transactions, the I.R.S. is in the process of considering, how much A.T.B. is enough for a spinoff to qualify for nonrecognition treatment.
The announcement also placed doubt on whether ruling requests already submitted to the I.R.S. would be issued. Speaking at a District of Columbia Bar Association event, a senior technical reviewer at the Office of the Associate Chief Counsel (Corporate) stated that the I.R.S. will hold off on issuing new ruling requests starting on May 19, 2015. He said that requests that were submitted before that date will be reviewed in the normal course, but that position may also change depending on what is decided in the next few months.
